"The European Economic and Monetary Union: An experiment whose time has come--or has it?"

Abstract

The countdown for establishing economic and monetary union (EMU) in Europe has started and the countries of the European Union are practically on automatic pilot. Nevertheless, some nagging questions still have to be addressed concerning the design of the project and the possibility that, if not detrimental, the benefits might not be as big as expected or as quick in arriving, as some had hoped. In addition there have been some developments recently that have been disconcerting since they violate if not the letter, then at least the intentions of the Maastricht Treaty--and in some cases even the letter. A particular point of disagreement has crept in among EU members concerning the strictness of meeting the Maastricht convergence criteria for EMU eligibility. Not less significant is the reinterpretation or outright potential violation--the unambiguity of the Maastricht Treaty to the contrary--of the independence of the European central bank which will succeed the European Monetary Institute and replace the autonomy of the individual central banks, combining them in the European System of Central Banks. Another point not to be overlooked is the exaggerated expectation put into EMU as an engine of growth and thus a creator of employment. Unemployment in Europe is more structural than cyclical in nature and requires restructuring of the domestic economies which macroeconomic policies are not equipped to achieve. Unfortunately, some EU countries have been moving in the wrong direction, rejecting the Anglo-Saxon model and refusing to accept the requirements of market forces and the trend toward globalization of production. Lack of required flexibility will become even more disruptive in the absence of flexible fiscal policy and the loss of the exchange rate adjustments.